The fund invests in a diversified portfolio of short-duration fixed income securities. The portfolio seeks to optimize income, consistent with limiting volatility and managing risk across different market conditions and stages of the credit cycle. The fund invests in investment-grade corporate and securitized instruments within the U.S. while also incorporating “plus” sectors to enhance income and portfolio diversification.

Securitized instruments include commercial mortgage-backed securities, residential mortgage-backed securities, and asset-backed securities (ABS), including collateralized loan obligations (CLOs). “Plus” sectors include below investment-grade (also known as high yield) instruments, leveraged loans (or bank loans), and international and emerging market debt. The fund also invests in U.S. government and agency securities.

The fund normally invests at least 80% of its net assets (including any borrowings for investment purposes) in fixed income securities. For purposes of determining whether the fund invests at least 80% of its net assets in fixed income securities, the fund includes the market value of derivative instruments that are linked to, or provide investment exposure to, fixed income securities. Under normal market conditions, the fund’s effective duration will be 3 years or less.

Duration is a calculation that seeks to measure the price sensitivity of a bond or a bond fund to changes in interest rates. It is expressed in years and takes into account the time value of cash flows generated over the bond’s life. Future interest and principal payments are discounted to reflect their present value and then multiplied by the number of years they will be received to produce a value expressed in years–the duration.

Since duration can be computed for bond funds, you can estimate the effect of interest rate fluctuations on share prices by multiplying the fund’s duration by an expected change in interest rates. For example, the price of a bond fund with a duration of three years would be expected to fall approximately 3% if interest rates rose by one percentage point.

The fund may invest up to 35% of its net assets in corporate bonds, bank loans, and other debt instruments that are rated below investment grade (below BBB-, or an equivalent rating), commonly known as high yield instruments, by each of the credit rating agencies that have assigned a rating to the security or, if unrated, deemed by the adviser to be below investment grade. The fund may invest in securities issued by both U.S. and non-U.S. issuers, including issuers in emerging market countries.

The fund may use a variety of derivatives, such as futures, options, forwards, and swaps for a number of purposes, such as for exposure or hedging. Specifically, the fund uses interest rate futures, interest rate options, and credit default swap indexes (CDX). The fund uses interest rate futures and interest rate options to manage the fund’s exposure to changes in interest rates or to adjust portfolio duration. A CDX is a swap on an index of credit default swaps. CDXs allow an investor to manage credit risk or take a position on a basket of credit entities (such as credit default swaps or a reference index) rather than transacting in a single-name credit default swap.

The fund may also purchase or sell mortgage-backed securities on a delayed delivery or forward commitment basis through the “to-be-announced” (TBA) market. With TBA transactions, the particular securities to be delivered are not identified at the trade date, but the delivered securities must meet specified terms and standards. The fund will generally enter into TBA transactions with the intention of taking possession of the underlying mortgage-backed securities. However, in an effort to obtain underlying mortgage-backed securities on more preferable terms or to enhance returns, the fund may extend the settlement by entering into “dollar roll” transactions in which the fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase substantially similar securities in the future at a predetermined price. The fund also expects to engage in short sales of TBA mortgages, including short sales on TBA mortgages the fund does not own, to potentially enhance returns or manage risk.